To offset economic pressures and generate returns required to drive greater earnings, which will fuel future loan growth, portfolio managers are aggressively expanding their policies and practices to drill more deeply and frequently into their portfolios by identifying those members where relationships can be expanded and conversely identify those which are accelerating debt and stress.

To do that, a growing number of lenders are finding that it pays to look not only at a score or snapshot of a consumer profile, but take into consideration the magnitude and direction of change as well as frequency of review on all obligations and beyond the obligations they manage.

Increasingly, this requires the ability to trend consumer credit data, identify specific member metrics, and track those changes over time. The most successful lenders have incorporated these metrics into their day-to-day processes. They consider trending one of the most important and effective techniques used to vector behavior and segment appropriately.

Lenders today look at internal and external trended data, for both traditional risk uses, such as in underwriting, as well as expanded uses that help identify retention, cross-sell and revenue opportunities. Trended data has the ability to focus on short-term changes (1-3 months), and longer periods (6-24 months), thus providing deeper behavioral transparency. One such solution, for instance, uses a consumer’s trended credit data to estimate an individual’s annual spend on each credit and charge card. It then aggregates those trade lines to provide a full view of an individual’s discretionary spending power.

The spend algorithm strongly correlates with income, deposit balances and net worth, therefore helping lenders differentiate the highest spenders from non-spending populations, allowing them to focus their capital where it counts.

The Importance of Trended Data

By quantifying a direction and magnitude of change, lenders are finding that while two members might have the same credit score and credit card debt today, they fall within two markedly different risk profiles.

For instance, just focusing on card data for the past five months, one member we’ll call Mary might show that her debt has declined to $12,000 from $29,500, reducing the utilization on Mary’s $50,000 credit line to 24% from 59%. At the same time, the other member, let’s call him Peter, has debt that has climbed to $12,000 from $4,100, increasing the utilization of Peter’s $50,000 credit line to 24% from 8%. Who is likely the best credit risk? Is the fact that Peter’s monthly payments have almost tripled in the last five months an early sign of stress?

Using trended data gives lenders the ability to segment portfolios into homogeneous populations, allowing them to

• Build stable risk models
• Identify consumer stress
• Target higher-spending members (or prospects)
• Assign credit lines (and pricing) based on actual spending need
• Retain members that contribute to the bottom line

Portfolio management is a science, but there is no all-encompassing solution or standard approach to maximizing return on an investment. With more than 7,000 NCUAinsured credit unions and an equal number of banks, creating an efficient process to manage risk and return is a continuous challenge. Below is a basic set of capabilities that can be modified to suit a lenders portfolio or budget:

• As a foundation, lenders should periodically analyze all existing members’ credit risk on a monthly or quarterly basis; this data allows for transparency in business planning and provides the ability to take actions if business, economic or consumer conditions change.
• Consumer stress happens quickly. Continually monitor key credit events such as bankruptcy filings, which have nearly 100% expected loss rate. This can help reduce any open exposure.
• Conversely, your best members may be seeking credit elsewhere. Why lose wallet share when simple notifications can be automatically sent to you allowing you to retain your existing members?
• Continually revalidating and calibrating strategies is basic safety and soundness. Risk thresholds and models, such as credit scores, must be adjusted quarterly. In addition, when considering the changing economic landscape and consumer behavior, revenue and usage assumptions change even more frequently.
• Use all member information available when making decisions. “Risk Score”-only decisions didn’t predict the economic downturn. Any risk score should be combined with income, spend and an understanding of all obligations when assigning pricing or credit lines. Bypassing any data reported about a customer, can leave gaps in risk assessment. For example, mortgage lenders should examine those consumers who are very late in their auto payments and those whose cars have been repossessed. They’re probably in such financial straits that they’re doing everything they can to make their home-loan payments.

What You Should Be Following

Follow credit-reporting developments closely. A trade line item on a credit report refers to a past or present credit relationship for vehicle loans, credit cards, mortgages, leases and other loans. A credit report lists separate trade lines for each account or credit card number, whether open or closed. A seasoned trade line is one that’s current with a history of timely payments. Also, public record items such as bankruptcy, court judgments and tax liens are key to completing the full picture of risk.

While there’s no crystal ball we can peer into to adapt to a changing economic and consumer landscape, adding trending capabilities and increasing the frequency of review can help create a more stable and predictable portfolio, generating not only the return needed but confidence that your product line or line of business deserves more capital for growth.

By Trevor Carone, Vice President of Product Marketing, Portfolio and Collection Solutions at Experian.

Originally published in the Credit Union Journal, April 23, 2012 – Download and Print the full article.

According to recent market intelligence, retail spend continues to trend up, translating into increased balance growth on new bankcard and retail card originations

Retail spend continues to trend up from a year ago driven by continued demand for autos in addition to growth in clothing store and restaurant sales. Translating into increased balance growth on new bankcard and retail card originations, particularly seen in the super prime and prime consumer risk segments, where balance growth and origination volumes had been down a year ago given relatively cautious sentiment. This is an encouraging sign in consumer confidence given the overall economic trends in unemployment and downward pressure on home prices.

]]> http://www.experian.com/blogs/insights/2012/04/30/retail-spend-bankcard-growth-is-trending-upward/feed/ 0 http://www.experian.com/blogs/insights/2012/04/30/collection-industry-under-the-cfpb-microscope/ http://www.experian.com/blogs/insights/2012/04/30/collection-industry-under-the-cfpb-microscope/#comments Mon, 30 Apr 2012 18:10:49 +0000 Samantha Haugh http://www.experian.com/blogs/newsletter/?p=53 A record 12,788 lawsuits were filed in 2011 against accounts receivable management companies for regulatory violations, with the majority related to the Fair Debt Collection Practices Act. This year began with increased concern from the collection industry as the Consumer Financial Protection Bureau (CFPB) shows heightened interest in debt collectors. With this increased scrutiny, collection companies are under the microscope even more than before. Companies face potential litigation, fines and negative publicity if they attempt to collect on past-due consumers without proper handling. It’s now critical to identify accounts with a protected status before making collection efforts, in order to minimize legal risk and optimize your resources.]]>

A record 12,788 lawsuits were filed in 2011 against accounts receivable management companies for regulatory violations, with the majority related to the Fair Debt Collection Practices Act. This year began with increased concern from the collection industry as the Consumer Financial Protection Bureau (CFPB) shows heightened interest in debt collectors.

Companies are facing potential litigation and fines

With this increased scrutiny, collection companies are under the microscope even more than before. Companies face potential litigation, fines and negative publicity if they attempt to collect on past-due consumers without proper handling. It’s now critical to identify accounts with a protected status before making collection efforts, in order to minimize legal risk and optimize your resources.

Experian’s FirstSweep^SM can help you optimize your treatment strategy to deal with regulatory risk. Experian^® can identify which consumers may be bankrupt, deceased or active duty military. Additionally, phone type and fraud indicators can be provided.

Act now by contacting your Experian account executive or calling 1 888 471 0066 to learn how FirstSweep can help you reduce regulatory risk.

On March 20, the Federal Deposit Insurance Corp. (FDIC) announced a proposed amendment to the Assessments, Dividends, Assessment Base and Large Bank Pricing Rule that it put forward in February 2011. The revised rule attempts to address lender concerns that they would be unable to comply with the new rule’s provisions, particularly the added requirement of reporting subprime and leveraged consumer loans.

Revisions proposed to the large bank pricing rule

Under the new proposal, subprime consumer loans would be renamed “higher-risk consumer loans and securities” and would be defined as:

• All consumer loans where, as of origination or refinance, the probability of default within two years was greater than 20 percent, excluding those consumer loans considered to be nontraditional mortgage loans; and
• Securitizations that are more than 50 percent collateralized by consumer loans meeting the criteria above, except those that are classified as trading book.

The FDIC will collect comments on the changes for 60 days and has extended the compliance date for the new reporting requirements until Oct. 1, 2012.

To find out how Experian can help you comply with the FDIC’S Large Bank Pricing Rule, contact us today or call 1 888 414 1120.

Being able to streamline the process and proactively match the right consumers to the right products will reduce acquisition costs.  Consumers also benefit because it has no impact on their credit score.

Clients tell us the number one reason people abandon online applications is because they are worried they’ll be declined. What if you alleviate this concern by matching consumers to the product that best fits their credit profile at the start of the shopping process, greatly improving their chances of approval when they apply?

Experian gives you this ability with Prequalification, a powerful, consent-based credit-screening tool that provides access to individual credit data so you can proactively match consumers to the right products when they still are considering their options. Prequalification also can help to educate consumers on their credit health.

Here’s how Prequalification has changed the acquisition game for two of our clients who are prospecting online. “Experian’s Prequalification works — providing real benefits to the consumer and the marketer,” according to Ian Cohen, CEO of Credit.com. “For the consumer, Prequalification reduces the risk and fear of rejections. Plus, it helps them better manage their credit. For us, the marketer, Prequalification has facilitated targeted marketing that produces well-matched leads, fewer declines and lower acquisition costs.”

A subprime credit card issuer using Prequalification for online acquisitions said, “Experian’s Prequalification product is the perfect fit for our target market. Prequalification allows consumers, especially those with little or less than perfect credit, to see if they are qualified for one of our cards without risking a negative impact to their credit score.”

Find out how Prequalification can change your online acquisition game today. Contact us at 1 888 649 7990.